More on this story

Hong Kong stocks retreated from a three-month high yesterday as investors rushed to lock in profit following Thursday's rally on news of the pilot scheme to allow cross-border stock trading in Shanghai and Hong Kong.

The Hang Seng Index lost 0.79 per cent, or 183.32 points, to finish at 23,003.64. The benchmark Shanghai Composite Index lost 0.18 per cent, or 3.76 points, to finish at 2,130.54.

"I think it is going to be more positive for Hong Kong than for the Shanghai market," said Stefano Chao, Shanghai-based investment manager at AZ Investment Management. "There are many interesting names such as some state-owned enterprises which mainlanders could not buy, but now they have access."

Tencent was the biggest drag on the Hang Seng Index yesterday, as investors fled amid fears of a global sell-off of internet stocks.

Tencent lost 6.75 per cent to finish at HK$525, after jumping by the most in three years on Thursday on speculation the new pilot scheme would attract huge interest from mainland buyers.

Bourse operator Hong Kong Exchanges & Clearing bucked the trend, however, on speculation trading volume of Hong Kong stocks would surge following the deal. HKEx jumped 11.5 per cent to finish at HK$146.

HKEx was set to be the biggest beneficiary of the pilot scheme, with shares likely to rise another 20 per cent after hitting a five-year high yesterday, JP Morgan said in a note yesterday.

Meanwhile, some local brokers extended advances on speculation new transactions will boost revenue, led by First Shanghai which jumped 18 per cent to finish at HK$0.99. Mainlanders will be allowed to trade a combined 250 billion yuan worth of Hong Kong stocks, with a cap of 10.5 billion yuan a day.

Trading volume stood at HK$96 billion yesterday, compared with a six-month average of HK$64 billion. When Beijing announced a proposed "through train" scheme in 2007, the Hong Kong market's turnover tripled to more than HK$200 billion a day. That scheme was abandoned before becoming a reality.

On the flip side, investors started to dump dual-listed shares in Hong Kong that are more expensive than their A share peers, on speculation money would flow to better-priced companies.

"This closer integration could have an impact on individual stock prices where companies have dual A and H listings," Schroders said in a note. "We may see a narrowing of valuation discounts between A and H shares over time."